Dollars pay your bills, not margins.
(Profit dollars should be your focus, always.)
When you’re making financial projections, it’s crucial to target the right metric.
Margins tell part of the story, but profit dollars keep your business afloat.
💡A smaller piece of a bigger pie? Better than a large piece of a small one.
Let’s break it down:
Suppose a business is generating $145K in net profits with a 25% contribution margin on a top line of $900K.
Fixed costs? They stay the same—let’s say $80K.
By lowering the contribution margin to 20%, you can increase your profit to $160K
Also, it’s easier.
Running a business with a 20% contribution margin is easier than chasing a 25% contribution margin.
Plus, the scale has its leverages.
Better cash flows, increased market share, and a stronger brand.
As long as you cover your costs and turn a profit, you’re good.
But if you can scale and increase those profits? That’s GOLD.
Just a word of caution, profit maximization requires financial discipline, thread carefully.
But remember, the goal is profit dollar maximization—not margin maximization.
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